For the record, we now believe the S&P is worth 900 at fair value or 30% above today’s price. Global equities are even cheaper. (Our estimates of current value are based on the assumption of normal P/Es being applied to normal profit margins.) Our 7-year estimated returns for the various equity categories are in the +10 to +13% range after inflation based on an assumption of a 7-year move from today’s environment back to normal conditions. This compares to a year ago when they were all negative! Unfortunately it also compares to a +15% forecast at the 1974 low, and because of that our guess is that there is still a 50/50 chance of crossing 600 on the S&P 500.I am probably psychologically sick (or my perception is distorted by domestic vortex of debility?), but crossing of 600 (we closed cash market at almost 720 today) still has a bit more of chance in my eyes ...
Well, it is not only about domestic issues, I somehow, probably totally wrong, feel that majority out there has got it wrong. As mentioned earlier, Samuel Brittan wrote that "Demand matters, not animal spirits", and that reinstated by Paul Krugman today once again... This simply means that manufacturing cycle will not lead recovery this time, but final consumer demand, if not substituted by government?
" ... normal P/Es being applied to normal profit margins"? If normal profit margins, then taxed away to cover government deficits for next 5 years? Sick ...
Technically the 724 (daily high of March 4) to 740 (daily low of November 21, 2008) area is a strong resistance level. I still consider the probability of selling climax (as assumed in the original message), starting in the Thursday/Monday window. If no climax then - prepare yourself for the rally bigger than you imagine now ...
And what Stephen Roach was trying to say?
I "felt" the top of the equity market in the 2007, but i do not feel the bottom yet ...
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